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The Will & the Way

Kamehameha Schools enters a new era with a homegrown strategic plan and a compelling will to carry it out.

November, 2000

If the very public and very tragic fall of the former Bishop Estate trustees that unfolded over the last several years was a bloody drama of greed and ambition akin to Macbeth, then the ongoing remaking of Kamehameha Schools is more like the decidedly quieter Our Town, a saga about community and the inexplicable bond between its members. However, while Kamehameha’s current storyline doesn’t have the soap opera appeal of the early tragedy, it is every bit as compelling and perhaps far more significant.

On September 28th, the five trustees of Kamehameha Schools unveiled the 112-year-old trust’s new strategic plan, which will be its road map for the next 10 to 15 years. The new plan officially and profoundly changes not only how the trust will do business but it also vastly broadens the scope and reach of its educational arms. And maybe most important of all, the new plan offers a simple and hopeful reinterpretation of Princess Bernice Pauahi Bishop’s wish for a school to “create good and industrious men and women.”

“We had become a business with a school attached,” says Kamehameha Schools’ CEO Hamilton McCubbin. “Kamehameha Schools is not about being a single campus anymore or having a main school with satellite campuses on other islands. Now we are an educational system, more like a university.”

Think of Stanford or Harvard, says McCubbin. Like the two universities, Kamehameha has an enormous endowment but unlike Kamehameha—until recently—those schools never lost sight of their ultimate goal: education. According to McCubbin, the success of the trust is no longer measured by its bottom line but how well and how many Native Hawaiians it educates.

“Our trust was built on a business model,” says McCubbin. “The purpose was to generate as much revenue as possible and then pour it into our campus. Our kids were incredibly supported, and they were enriched. But if the mission is to serve as many Native Hawaiians as possible, then we aren’t doing enough. It is a very fundamental shift in philosophy.”

Started in October of 1999, the strategic planning process was a dizzying whirlwind of activity: presentations, planning sessions, meetings and phone surveys. In addition to the 400 people who served on 16 work groups, more than 2,000 members of Kamehameha’s extended family participated in 67 community meetings throughout the state and on the mainland.

“Painful, maybe. Painstaking, yes. We had a lot of pent-up manao,” says Kekoa Paulson, Kamehameha Schools’ director of community relations. “What we uncovered wasn’t really a great mystery. Many of things we were told have been in the hearts and minds of our family members for a long time. The energy was very positive and for us it reaffirmed our belief that people really cared for the institution even after all that we had gone through.”

“Our role was to agree on a vision and what the mission and values were and the details were left to the many, many people who worked on the plan,” says Robert K.U. Kihune, chairman of the board of the interim trustees. “The trustees were briefed weekly, but we purposely tried not to hinder or influence the process.”

The resulting grassroots plan guides a new system that will include three K-12 campuses on three different islands. It also calls for an ambitious outreach effort that will include expanded preschool, literacy and vocational programs, along with a wide array of partnerships McCubbin hopes to enter into with the public and private sectors to stretch the school’s dollars. In addition, admissions and financial aid offices are being moved under the purview of the CEO to address past accusations of tampering. And to increase accountability, the plan also calls for the formation of new divisions, which will benchmark and monitor the progress of Kamehameha initiatives.

For the next five years, Kamehameha Schools has $350 million in new construction planned. This does not include operational fees, which will most certainly exceed the current budget of $150 million.

To pay for this ambitious expansion, the trust has adopted new investment and spending policies that specifically map out how the trust’s portfolio is structured and how much the trust can spend over time. Now, 55 percent of the endowment is invested in marketable securities. Alternative assets or private placements make up about 15 percent, and the remaining 30 percent are invested in bonds. The trust must spend between 2.5 percent and 6 percent or an average of 4 percent of the endowment’s earnings each year. With the trust’s endowment currently valued at approximately $5 billion, that means about a $200 million annual budget for the schools.

“I’d like to say that we are risk adverse but there is a place for risk in our investments,” says new Chief Investment Officer Wendell F. Brooks, Jr. “For example, one third of alternative investments is earmarked for venture capital, which may add a little kicker to our earnings. However, a vast majority of our assets will go into more conservative investments.”

According to Brooks, the former president and CEO of the property management company Chaney, Brooks & Company, the restructuring of the portfolio was designed to preserve and protect the corpus, the body of the estate. Long term has replaced long shot and the investment division now works in unison with education in decision making.

“We have to pay for everything so they need to know what we are doing and we need to know what they are doing,” says Brooks. “Our whole purpose is to generate funds to pay for programs.”

Brooks is one of five new corporate managers who make up what is called the Executive Management Team, which oversee the day-to-day operations of Kamehameha Schools. These managers, which include a chief financial officer, chief legal officer, chief administrative officer and a chief education officer, report to McCubbin. All are currently overseeing an overhaul, or, in some instances, creation of their divisions.

“We are in a rebuilding stage and revitalizing as well,” says McCubbin. “Everything is being consolidated. Secondly, information is now expertise driven and the third is that education and money management and investment are all related. We needed to change the way we managed, period. I think there was a feeling that things got done quicker with the old trustees and their segregated roles. But we had micromanagement problems. If it is too simplified and the trustees have access to the operational elements of the organization then you have enormous problems.”

“I don’t know any timeline besides ASAP,” says Eric K. Yeaman, chief financial officer, who is furiously trying to bring financial functions spread throughout the trust under one roof. “We’re changing the whole process, basically it is going to be a conventional corporate model.” Under the new system, the trustees are free to concentrate on longer-range, bigger-picture concerns. When they meet as a group they are given information and proposals that have already been processed and reviewed by the respective divisions. In addition, decision making is sprinkled throughout the organization and does not just percolated up to the top.

But will these democratic reforms and a growing administration that will expand by as much as a third create a bureaucratic behemoth, an organization paralyzed by checks and balances and procedures? Not so, say officials. While it does bring an extra layer of bureaucracy to the system it also brings definition and discipline. According to McCubbin, in the old organization select groups tended to get favored treatment. There were competing loyalties, inequities and an atmosphere of mistrust.

“It is safe to say that we aren’t where we want to be organizationally just yet,” says Trustee Constance Lau. “But in the context of planning, our corporate structure is superior. Now there is a sharing of information and one can make informed decisions. We can plan programs more effectively because we have a better idea of what kind of resources we are working with.”

According to all involved, the reorganization process will not be an easy one because not only are executives asking their people to work differently but also to think differently. Freedom is accompanied with responsibility and accountability. And change brings anxiety, according to Lau.

“There aren’t too many organizations which would undertake something this big all at one time, but we had no choice,” says McCubbin. “I think the Princess would be pleased with what has happened. It was the Hawaiian people who she was interested in, not empires, not Taj Mahal campuses or even Kawaiahao Plazas. This is an exciting time to be here.”